I'm a native New Yorker -- when I was a kid, we lived right across the street from a police station -- and I have never, ever seen anybody ticketed for jaywalking, so I'm thinking that even if this proposal were to become law the day-to-day impact would be unnoticeable. Of course, we do have an iPod Zombie problem in the Big Apple, but it's generalized to all sorts of portable devices. I once grabbed a guy who was about to walk in front of a delivery truck while he was focused, head down, on dialing his RAZR; he actually thanked me, another NYC rarity.
Perhaps, instead of criminalizing stupidity (which rarely works), a targeted PR campaign on the subways could remind iPod users to "turn down & tune in" while they navigate the mean streets. Anyone want to design the poster? Link it in the comments or post on Flickr, give it a Creative Commons license and tag it 'turndowntunein' -- if there are a few that stand out, I'll try to get them noticed by NYC officials.